Global Competitiveness (Edexcel A Level Business): Revision Note
Exam code: 9BS0
Exchange rate fluctuations
Global competitiveness is the ability of a business to perform better than its rivals across markets in different countries
An exchange rate is the value of one currency in terms of another currency
Fluctuations in exchange rates can influence the competitiveness of a business
Currency appreciation
An appreciation of the exchange rate means the value of a currency increases against another currency
E.g. if £1 = $1.60 but then the £ increases to £1 = $1.80, the value of the £ has appreciated against the US$
The impact of currency appreciation on global competitiveness
Advantages of an appreciation |
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Disadvantages of an appreciation |
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Currency depreciation
A depreciation of the exchange rate means that the value of the currency decreases against another currency
E.g. if £1 = $1.60 but then the £ falls to £1 = $1.20, the value of the £ has depreciated against the US$
The impact of a currency depreciation on global competitiveness
Advantages of depreciation |
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Disadvantages of depreciation |
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Examiner Tips and Tricks
Paper 1 and Paper 3 frequently question you on the impact of exchange rate changes on a business. The information may be presented as a) a written extract or b) a table or graph showing the fluctuations in the exchange rate. It is important to be able to explain whether an appreciation or depreciation has occurred.
Acronyms to help explain the impact of exchange rate changes include:
S.P.I.C.E.D - Strong Pound Imports Cheaper Exports Dearer (dearer means more expensive)
W.P.I.D.E.C - Weak Pound Imports Dearer Exports Cheaper
You can use the pound interchangeably with any other currency used in the exam.
Competitive advantage
Global competitiveness increases when a firm has a competitive advantage
Two factors that provide a competitive advantage include cost competitiveness and differentiation
Cost competitiveness
Cost competitiveness is when a business becomes one of the lowest-cost producers in its industry
Cost competitiveness can be achieved using strategies such as:
Increasing the productivity of its workforce
Using machinery and technology efficiently
Outsourcing
Offshoring
Businesses can utilise their position as a cost leader to reduce their prices or keep their prices the same, which results in an increase in profit margins
Differentiation
Differentiation occurs when a business makes the characteristics of its products/services different from those of its competitors
Methods of differentiation include developing a strong brand and having a better design, better quality and better customer service
The impact of skills shortages
If a business is unable to find labour with the required skills, it will affect its ability to gain a competitive advantage
Cost leadership could be difficult to achieve if the workers lack skills, as they may not be as productive
This could increase unit costs due to factors such as waste
Product differentiation is less likely to occur if workers lack the skills and expertise to produce highly differentiated products
In order to overcome these issues, a business can use outsourcing and offshoring to access the skills needed for its business
Case Study
Fenwick Optics
Fenwick Optics is a specialist manufacturer of high-precision lenses for cameras and scientific instruments, based in Sheffield and exporting to customers across Europe, the USA and Japan.
When the pound appreciated sharply against the dollar last year, Fenwick's American customers found its lenses more expensive, and several switched to cheaper Asian suppliers. Rather than competing on price, which its smaller scale made difficult, Fenwick doubled down on differentiation, investing in even higher precision grinding techniques and offering bespoke lens specifications that larger competitors could not easily match.
This strategy has been complicated by a persistent skills shortage. Precision optical engineering requires years of specialist training, and Fenwick has struggled to recruit enough qualified staff, leading to longer lead times and, on occasion, inconsistent quality on complex orders.
To address this, the company has begun offering apprenticeships and partnering with a local university, hoping to build its own pool of skilled workers rather than competing for fewer and fewer experienced engineers already in the industry
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